Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Question
Chapter 11, Problem 11.22P
To determine
Introduction: Foreign exchange rate is the rate at which currency of one country is changed to currency of another country is called foreign exchange rate. Mainly there are two rate, i.e. direct exchange rate and indirect exchange rate.
Foreign exchange gain or loss: Foreign exchange gain or loss arises when there is selling or buying of any goods and services in foreign currency.
The recording of the journal entries related to the sale made by T company, use of forward contract and entries regarding the settlement.
Expert Solution & Answer
Explanation of Solution
- Journal entries to record sale of blue jeans to a firm in South Korea is as follows:
- Journal entries to record purchase of woolen goods from a firm in Ireland is as follows:
- Journal entries to record purchase of toys from a firm in Taiwan and the forward contract is as follows:
Journal entry related to sale of microcomputers to a German company and entries related to forward contract entered is as follows:
Date | Particulars | Debit ($) | Credit ($) |
Jan-15 | Accounts receivable | 7400 | |
To sales account | 7400 | ||
(Recording entry for sale of blue jeans to a company in South Korea) | |||
Mar-15 | Cash | 7400 | |
To Accounts receivable | 7400 | ||
(Recoding entry for receiving cash from South Korean company in Dollars) |
Date | Particulars | Debit ($) | Credit ($) |
Mar-08 | Purchase account | 4354 | |
To Accounts payable (€7000*0.622) | 4354 | ||
(recording entry for purchase of woollen goods from Ireland) | |||
May-01 | Accounts payable | 84 | |
To foreign currency gain account [€7000*(0.610-0.622)] | 84 | ||
(Recording entry for revaluing the account payable value at settlement date) | |||
May-01 | Accounts payable | 4270 | |
To foreign currency units (€7000*0.610) | 4270 | ||
(Recording entry for payment of Euros to Ireland) |
Date | Particulars | Debit ($) | Credit ($) |
May-12 | Foreign currency units receivable from broker | 3008 | |
To Dollars payable to broker (NT$80,000*0.0376) | 3008 | ||
(Recording entry for entering into the 120-day forward contract @0.0376) | |||
Aug-01 | Foreign currency receivable from broker | 16 | |
To foreign currency gain [(0.0376-0.0378) *80,000] | 16 | ||
(Recording entry for change in the rate of forward contract as on August 1) | |||
Aug-01 | Purchase account | 2960 | |
To Accounts payable (80000*0.0370) | 2960 | ||
(Recording entry for purchase of goods as the goods were delivered on August 1 but rate should be when contract was made i.e. at spot rate on May 12) | |||
Aug-01 | Foreign currency transaction loss | 40 | |
To Accounts payable [(0.0370-0.0375) *80000] | 40 | ||
(Recording entry for revaluing the accounts payable at spot rate i.e. 0.0375) | |||
Sep-09 | Foreign currency transaction loss | 48 | |
To Foreign currency receivable from broker [(0.0378-0.0372)*80000] | 48 | ||
(Recording entry for revaluing the forward contract at the time of settlement) | |||
Sep-09 | Accounts payable [(0.0375-0.0372) *80000] | 24 | |
To Foreign currency transaction gain | 24 | ||
(Recording entry for revaluing accounts payable at settlement date) | |||
Sep-09 | Dollars payable to broker | 3008 | |
To Cash | 3008 | ||
(Recording entry for settlement of forward contract by payable Dollars to broker) | |||
Sep-09 | Foreign currency units | 2976 | |
To Foreign currency receivable from broker (80000*0.0372) | 2976 | ||
(Recording entry for receipt of Taiwan dollars from broker at spot rate i.e. 0.0372) | |||
Sep-09 | Accounts payable | 2976 | |
To Foreign currency units (80000*0.0372) | 2976 | ||
(Recording entry for settlement of the contract of purchase and paying Taiwan Dollars to the company) |
Date | Particulars | Debit ($) | Credit ($) |
Jun-06 | Accounts receivable | 90,000 | |
To Sales accounts (€150,000*0.600) | 90,000 | ||
(Recording entry for sale of microcomputers to a German company) | |||
Jul-06 | Dollars receivable from broker | 87,000 | |
To Foreign currency units payable to broker (€150,000*0.580) | 87,000 | ||
(Recording entry for entering into the 60-day forward contract) | |||
Sep-04 | Foreign currency transaction loss | 2250 | |
To Accounts receivable [(0.600-0.585) *150,000] | 2250 | ||
(Recording entry for revaluing the accounts receivable on September 4 i.e. settlement date) | |||
Sep-04 | Foreign currency transaction loss | 750 | |
To Foreign currency units payable to broker [(€150,000*(0.580-0.585)] | 750 | ||
Sep-04 | Foreign currency units | 87,750 | |
To Accounts receivable (150000*0.585) | 87,750 | ||
(Recording entry for receipt of Euros from German company on settlement date at spot rate i.e. 0.0585) | |||
Sep-04 | Foreign currency payable to broker | 87,750 | |
To Foreign currency units (150,000*0.585) | 87,750 | ||
(Recording entry for delivering Euros to broker as per the forward contract) | |||
Sep-04 | Cash | 87,000 | |
To Dollars receivable from broker (150000*0.580) | 87,000 | ||
(Recording entry for receipt of Dollars from broker as per forward contract) |
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Students have asked these similar questions
Harris Incorporated had the following transactions:
On May 1, Harris purchased parts from a Japanese company for a U.S. dollar–equivalent value of $7,000 to be paid on June 20. The exchange rates were
May 1
1 yen = $0.0070
June 20
1 yen = 0.0075
On July 1, Harris sold products to a Brazilian customer for a U.S. dollar equivalent of $10,400, to be received on August 10. Brazil’s local currency unit is the real. The exchange rates were
July 1
1 real = $0.20
August 10
1 real = 0.22
Required:
Assume that the two transactions are denominated in U.S. dollars. Prepare the entries required for the dates of the transactions and their settlement in U.S. dollars.
Assume that the two transactions are denominated in the applicable LCUs of the foreign entities. Prepare the entries required for the dates of the transactions and their settlement in the LCUs of the Japanese company (yen) and the Brazilian customer (real).
1.
On September 1, 20X1, Cano & Company, a U.S. corporation, sold merchandise to a foreign firm for 250,000 euros. Terms of the sale require payment in euros on February 1, 20X2. On September 1, 20X1, the spot exchange rate was $1.30 per euro. At Cano’s year-end on December 31, 20X1, the spot rate was $1.28, but the rate increased to $1.33 by February 1, 20X2, when payment was received.
Required:
What foreign currency transaction gain or loss should be recorded in 20X1?
What foreign currency transaction gain or loss should be recorded in 20X2?
Amount
Gain / Loss
1.
Foreign currency transaction gain (loss) 20X1
2.
Foreign currency transaction gain (loss) - 20X2
Peerless Corporation (a U.S. company) made a sale to a foreign customer on December 15, 20X1 for 125,000 crowns. It received payment on January 15, 20X2. The following exchange rates for 1 crown apply:
December 15
$
0.61
December 31
0.65
January 15
0.60
How does the fluctuation in exchange rates affect Peerless’s 20X1 income statement?
Chapter 11 Solutions
Advanced Financial Accounting
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Ch. 11 - Prob. 11.11QCh. 11 - Prob. 11.12QCh. 11 - Effects of Changing Exchange Rates Analysis Since...Ch. 11 - Prob. 11.2CCh. 11 - Prob. 11.5CCh. 11 - Prob. 11.1ECh. 11 - Prob. 11.2ECh. 11 - Basic Understanding of Foreign Exposure The...Ch. 11 - Prob. 11.5ECh. 11 - Prob. 11.6ECh. 11 - Prob. 11.7ECh. 11 - Adjusting Entries for Foreign Currency Balances...Ch. 11 - Prob. 11.9ECh. 11 - Prob. 11.10ECh. 11 - Prob. 11.11.1ECh. 11 - Prob. 11.11.2ECh. 11 - Prob. 11.11.3ECh. 11 - Prob. 11.11.4ECh. 11 - Prob. 11.11.5ECh. 11 - Prob. 11.11.6ECh. 11 - Prob. 11.11.7ECh. 11 - Prob. 11.12ECh. 11 - Prob. 11.13ECh. 11 - Prob. 11.14.1ECh. 11 - Foreign Currency Transactions [AICPA Adapted]...Ch. 11 - Prob. 11.14.3ECh. 11 - Prob. 11.14.4ECh. 11 - Prob. 11.14.5ECh. 11 - Foreign Currency Transactions [AICPA Adapted]...Ch. 11 - Prob. 11.14.7ECh. 11 - Prob. 11.15ECh. 11 - Prob. 11.16AECh. 11 - Prob. 11.17ECh. 11 - Prob. 11.18ECh. 11 - Prob. 11.19.1ECh. 11 - Prob. 11.19.2ECh. 11 - Prob. 11.19.3ECh. 11 - Prob. 11.19.4ECh. 11 - Prob. 11.19.5ECh. 11 - Prob. 11.20.1PCh. 11 - Prob. 11.20.2PCh. 11 - Prob. 11.20.3PCh. 11 - Prob. 11.20.4PCh. 11 - Prob. 11.20.5PCh. 11 - Foreign Sales Tex Hardware sells many of its...Ch. 11 - Prob. 11.22PCh. 11 - Prob. 11.23.1PCh. 11 - Prob. 11.23.2PCh. 11 - Prob. 11.24PCh. 11 - Prob. 11.25PCh. 11 - Prob. 11.26PCh. 11 - Prob. 11.27.1PCh. 11 - Prob. 11.27.2PCh. 11 - Prob. 11.27.3PCh. 11 - Prob. 11.28APCh. 11 - Prob. 11.29.1BPCh. 11 - Prob. 11.29.2BPCh. 11 - Prob. 11.29.3BPCh. 11 - Prob. 11.29.4BPCh. 11 - Prob. 11.29.5BPCh. 11 - Prob. 11.29.6BPCh. 11 - Prob. 11.30BPCh. 11 - Prob. 11.31BPCh. 11 - Matching Key Terms Match the items in the lefthand...
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